My personal finance a-ha moments

I spend a lot of time using My Own Advisor to share what’s working with our financial plan and how incremental money management changes are moving us towards financial independence.  I’ve also shared some money management mistakes on this site.  I do this because I believe most people learn more from their failures than their successes…at least I do.  Writing about success and failure can be helpful because money affects our lives in so many different ways:  how we save, how we invest, what we shop for, where we spend our money, what products and services we buy, what entertainment we are willing to pay for and much, much, more.

For today’s post I thought I’d write about some personal finance a-ha moments.  Hopefully you can learn a few things from me and you can share your own moment or moments in a Comment below, in a Tweet, on Google+ or a Facebook Like with me.

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein

  • Buying mortgage life insurance is bad – I held mortgage life insurance many years ago but I think this is the wrong product to own for many reasons. I think most homeowners are better off with individual life insurance instead.  Never again.
  • Buying penny stocks is very bad – I bought a couple of penny stocks in my 20s, hoping they would skyrocket in value over time.  I’m still working today, so guess how those speculative adventures turned out?  Never again.
  • Investing in high-priced mutual funds is also bad – I invested in mutual funds that charged money management fees close to 2% throughout my 20s and into my early 30s. I simply had no idea at the time how much those fees would eat into my investment returns.  Never again.
  • Keeping my investment costs as low as possible is ideal – Good financial advice can be hard to find. This is largely why I’ve decided to become a do-it-yourself investor, trusting my own money management abilities.  As part of this process I’ve learned money management fees and trading costs will kill a portfolio so I’m keeping my investment costs as low as possible for as long as possible.  I’ve decided to buy and hold a number of stocks for the long-run and use low-cost investment products like Exchange Traded Funds (ETFs) across our portfolio.
  • Not tracking my expenses is another bad – I’m not a zealot for budgets but on the other hand I’m convinced you need to know what your expenses are. I didn’t track my expenses in my 20s very well however for the last 7-8 years I’ve been more diligent in forecasting where my money goes and been wealthier for it.
  • Accelerating my mortgage payments are very good – I’ve come to realize while some forms of debt can be good (debt used to pay for an appreciating asset (like a house)) long-term debt is generally bad because it limits what you can do with your cash. We can’t wait to kill our mortgage and be debt-free.
  • Paying myself first is essential to financial freedom – Like any bill payment, once it’s paid, you rarely get an opportunity to get your money back.  I consider bill payments to myself an obligation not just a good thing to do. Paying Us Inc. is critical to our financial well-being.

Over the years, I’ve realized there is no magic bullet to getting rich quickly.  There are however some keys to getting wealthy eventually.  This is what I’m focused on.  This means focusing on paying ourselves first, killing debt, understanding financial products and staying invested for the long-term using low-cost products.  In the end maybe these are not so much a-ha moments as they are financial truths.

What are your personal finance a-ha moments?

35 Responses to "My personal finance a-ha moments"

  1. Hey – really like following you on your journey Mark. I’m 27 and only now starting to pick up these financial lessons, which you just don’t learn in school…

    I appreciate you sharing what’s worked for you and especially what hasn’t worked!!!

    Do you feel buying a house (consumption, not investment) was a good financial investment in hindsight?

    And if so, whereas the break even on the cost of that house/mortgage in relation to income where it no crosses the line from investment to consumption only.

    Am wondering whether to buy in Toronto or keep renting and investing….

    Reply
    1. Thanks for the kind words David, hope you keep following along!

      I didn’t list a house purposely. In hindsight, I’d probably be further “ahead” if I just rented over the last 15 years. That said, I hope to be mortgage free in another 7 years. If that happens, and our house appreciates a bit more, I will probably break-even.

      Don’t underestimate the costs of owning a home. Property taxes and yearly maintenance can easily cost $10,000 or more per year. That’s almost $1,000 a month more than your rent. Invest that, use a calculator with a rate of return of about 7% for 15 years and see where you get 😉

      Buying a home isn’t always a financial decision, it’s also a lifestyle choice.

      Reply
    1. One of the things to consider about a financial advisor is “who is paying him/her?”
      If they are working for a financial institution, bank. insurance company, investment form, etc, then you are just a small part of their pay cheque. Their main consideration is seeing that their employer does well.
      So “Taking Care OF Business” yourself just may be a thing to think about. Not for everyone but take the time to consider self directed accounts.
      SO far it has worked for me.

      Reply
      1. Understanding where the compensation is coming from is key. Self-directed accounts are great for those that take the time to self-direct, I suspect they are a misnomer for some people. Thanks for your comment.

        Reply
  2. In my early twenties I gave a hot shot stock broker 100k and he wittled it down to 5k with bad investments. Bottom line is not to trust anyone with your money.

    Also never lend money to your family. It will change the relationship 90% for the worse

    Reply
  3. Many adults don’t have good financial sense, so if you’re first starting out saving money, you’d have a lot more success receiving good advice by reading a few books and blogs than asking them for financial advice.

    Reply
  4. Luckily I learned most of these things pretty early in life, because I started investing young (in the investment world, I guess) at 22 years old. I was researching for at least a year before I jumped in and I still read a ton of investing blogs and publications. You live and you learn!

    Reply
  5. Happy to say I all those good things and avoid the rest. Also don’t see myself in a house for quite some time either, and like in your example I lean towards renting anyways. Between Uni, reading financial sections and great blogs like yours and others I think I’m on the right track. I’m already noticing my dividend income going up month by month as well!

    Thanks! 🙂

    Reply
    1. It definitely sounds like you’re on the right track Wisp. I think if you’re noticing your investments do the work for you, that is definitely moving in the right direction.

      Reply
  6. My ah-ha moment,

    that frugal doesn’t always mean the cheapest option. Rather a balance between quality and a fair cost.

    Man, it’s been awhile since I’ve commented on your posts. 🙂

    Reply
  7. An important ah-ha moment for me was watching a seemingly linear growth investment profile start to curve… upward 🙂 . Compounding returns on returns really does work, over time – Cheers.

    Reply
  8. Tracking expenses is a good point, something that I don’t do currently. Maybe I will get my partner to do it for me. LOL.

    And I did hear bad things about mortgage life insurance before. Now my suspicions are confirmed. Thanks for the heads up as I may be getting a mortgage in the near future.

    Reply
  9. Mark,

    Nice list – really cool that you shared this with us. I give it to paying yourself first as if you are a bill. Though I work for a firm still – I definitely take advantage and have a portion, large portion that is, that goes directly in my savings account that is linked to my brokerage account. Us diplomats are doing a 60% savings challenge and I think with my automation – it already places me near the 50% mark. Thanks again, hope you’re having a solid weekend!

    -Lanny

    Reply
    1. 50% monthly savings rate? Very impressive Lanny. We are not near that, largely because about 20% of our net income is going to mortgage prepayments. Hopefully when the mortgage is done, we can REALLY ramp up investing.

      Reply
  10. Great lessons learned, Mark.
    “Accelerating my mortgage payments are very good.” Does this also apply to mortgage of property bought for investment?

    Reply
    1. Thanks Cheryl. You know, you raise an interesting point about killing debt for an RE investment. I think if you’re not too leveraged, you have ample assets, there maybe no huge rush to kill that debt.

      That said, I think no debt is good debt even when it comes to an RE property. Debt limits cashflow including from an income property. We used to have one, we know 🙂

      Reply

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